Interdum stultus opportuna loquitur...

Wednesday, June 01, 2005

USRant: Blue Monday? How Strange...

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You can't fool all of the people all of the time", as the saying attributed to Abraham Lincoln goes. Ol' Abe was a typical politician; he preferred high-flown rhetoric to actual deeds. What failed to say was that you don't have to fool all of the people all of the time; you only have to fool most of those who vote, and you only have to do that every four years. But that doesn't make for a very good aphorism.

Speaking of fooling people, it seems that fewer folks are being fooled by GIGO indices. (GIGO stands for 'garbage in, garbage out'). For example, the Conference Boards Consumer Confidence Index beat expectations into the dust, posting a level of 102.2 which far exceeded consensus expectations of 96 (the actual result was even outside the upper bound of the consensus range which was 95.0-100.0). the immediate reaction was "who gives a..." on the basis that... get this... it is uncorrelated with consumption behaviour.

Well, paint me brown and call me a horse-apple. Not only has someone finally started checking if these great-sounding indices are actually worth a damn, but they did it on a day when the data was good.

I'm not saying that anybody has been listening to my exhortations about the Conference Board numbers (and the Leading Indicators, and a bunch of other survey-based crap that is uncorrelated with anything), but, well, I have blathered on about their pointlessness for some time.

Apart from the Consumer Confidence numbers, there was also the Chicago NAPM Index - another survey-based piece of junk that has marketed itself into the consciousness of people who can't be bothered performing a simple ARIMA analysis of whether it is and explanator for industrial activity. (Hint: I have, and it's not).

Anyhow - the Chicago NAPM was much weaker than expectations (54.1 compared with expectations for 60.3), and was the weakest reading since mid-2003, Every component of the index was weak - which as I have said previously, mens bugger all. The NAPM is like a stopped clock; every now and then it actually coincides with reality. It's not doing that yet (reality is the US is in recession, and a reasonably deep one that is only being hidden by Soviet-style changes to statistical reporting methodologies; the NAPM is still saying the economy is expanding).

Neither of the economic numbers meant a damn thing to the market... the next section, as usual, is the best single explanator of intraday market action.

And of course, it's not "Blue Monday"... it was Tuesday. Monday was spent watching US politicians exploit their massive collection of corpses, bathing in blood and blathering about freedom. State Business as usual...

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $6.75billion, 6-day repurchase with $4.562billion in T-backed collateral. That falls below the notional $5 billion cutoff for a 10 a.m. moonshot, and there was certainly no indication of bulls at 10 a.m. NY time.

The thing about analysing the repo numbers is that the analysis is reasonably faceted: the actual repo table looks like this:

Deal Date: Tuesday, May 31, 2005
Delivery Date: Tuesday, May 31, 2005
Maturity Date: Wednesday, June 01, 2005
Type of Operation1: Repo
Settlement: Same Day
Term of Operation2: 1 Day
Operation Close Time: 09:45 AM

Weighted Average Rate 2.939 3.035 3.060
Stop Out Rate3 2.930 3.030 3.060
Highest Rate Submitted 2.960 3.040 3.060
Lowest Rate Submitted 2.900 2.980 2.980
Total Propositions Submitted (in $bil.) 19.350 15.950 2.700
Total Propositions Accepted (in $bil.) 4.562 1.852 0.336
Total Money Value of Operation (in $bil.) 6.750    

There are a couple of things that a good repo-watcher needs to look at: the overall quantity of T-backed repo is important, but it should be taken in conjunction with the weighted average rate (if it's lower than the Fed Funds rate, it means that the Fed is giving this money out at 'guaranteed carry').  The term of operation is also important; the longer the term, the less likely the repo will be used to drive the market in the very short term.

If the 'stop out' rate (the lowest rate accepted) is close to the lowest rate submitted, it means that the Fed kept doling out money until pretty much everybody had their fill.

Finally, Total Propositions Submitted is the indicator of demand for repurchase dough. If demand totalled $19.35 billion (as it did today) but only $4.562 billion in T-backed repurchase agreements were struck, it means that just under $15 billion of demand was at or under 2.93%. Large amounts of demand for repurchase dough is an indication of bank 'desperation' for funds; that desperation is seldom purely a demand for liquidity (it is a demand for 'guaranteed carry' dough that they can use to pump the markets). Every 'short squeeze' day is accompanied by large repo demand.

When you tot it all up, it is very close to a guaranteed indicator of whether or not there will be a 10 a.m. jamjob.

Major US Indices

The Dow Jones Industrial Average lost 75.07 points (0.71%), closing out the day at 10467.48 points. The index's intraday high of 10542.33 was set at the open (I keep repeating this, but the open for the Dow is an artefact, not a genuine opening price). Within half an hour the Dow was testing 10500, and for the rest of the session it never got above 10525. It had one last shot at a move upwards starting at 1 p.m. (when liquidity is pretty much absent) before falling apart and setting its session low (10467.48) at the closing bell.

Only 2 index components rose - Boeing (BA, +1.40% to $63.90) and American Express (AXP, +1.13% to $53.85). Between them they provided 11 Dow points worth of upward pressure. Losers in the Dow numbered 28 and were led by International Business Machines (IBM, -2.01% to $75.55) and Pfizer (PFE, -1.59% to $27.90), with these two stocks contributing 15 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by almost 40:1... 334.3m shares were traded in losers compared to a paltry 9.7m in the gainers. That's not one of my many typos... 334 million shares to just 9 million...

The broader S&P500 declined 7.28 points (0.61%), ending the day at 1191.5 (which was also its low for the session) after falling more than 6 points in the last 45 minutes. Within the index, gainers numbered 161, while 330 S&P500 stocks fell for the day. Volume was tilted 2.6:1 in favour of the losers with 1252.78 million units traded in the losers as compared with 480.91 million shares traded in the winners.

Over at Times Square, the Nasdaq Composite dipped 7.51 points (0.36%), to close at 2068.22, while larger-cap technology issues fared worse with the Nasdaq100 losing 7.17 points (0.46%), to end at 1542.63 points. Within the tech benchmark 36 index components managed to finish in the green, while 63 Nasdaq100 stocks fell for the day. Volume was tilted 2.2:1 in favour of the losers with 518.51 million traded in the losers compared to 237.45 million in the winners .

NYSE Volume was highly-chunky, with 1.92 billion shares changing hands, while Nasdaq Volume was just vanilla-chunky, with 1.77 billion shares being shifted from one online brokerage account to another. I am mad as hell about that stupid Dolmio ad; it has screwed up my use of the word 'chunky' forever... I think I will have to think up another term.

Major Market Statistics
Index Close Gain(Loss) %
Dow Jones Industrial Average 10467.48 -75.07 -0.71%
S&P500 1191.5 -7.28 -0.61%
Nasdaq Composite 2068.22 -7.51 -0.36%
Nasdaq100 1542.63 -7.17 -0.46%
NYSE Volume 1.92bn - -
Nasdaq Volume 1.77bn - -


My 9-stock "bellwethers" group fell by an average of 1.28%

  • General Electric (GE) -$0.40 (1.08%) to $36.48;
  • Citigroup (C) -$0.17 (0.36%) to $47.11;
  • Wal Mart (WMT) -$0.04 (0.08%) to $47.23;
  • I.B.M. (IBM) -$1.55 (2.01%) to $75.55;
  • Intel (INTC) -$0.43 (1.57%) to $26.96;
  • Cisco Systems (CSCO) -$0.39 (1.97%) to $19.40;
  • eBay (EBAY) -$0.30 (0.78%) to $38.00;
  • Fannie Mae (FNM) -$1.50 (2.47%) to $59.24; and
  • Freddie Mac (FRE) -$0.76 (1.16%) to $65.04.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1681 to 1609 for a single-day A/D reading of 72; that's amazingly balanced considering the decline in the indices. Nasdaq losers exceeded gainers by 1597 to 1474. The 10-day moving average of the A/D line fell to 447.0 on the NYSE, while the 10dma of the Nasdaq A/D fell to 163.8.

On the NYSE declining volume was greater than volume in advancing issues by 1133.9 to 747.1 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 1000.9 to 746.8 million shares.

134 NYSE-listed stocks rose to new 52-week highs, and 23 posted fresh 52-week lows, while on the Nasdaq there were 89 stocks that hit new 52-week highs, and 43 which fell to fresh 52-week lows.

A note again about the Put-Call Ratio; the data provider that I have been using keeps changing the data for the PCR; last Friday, Friday's PCR was listed as 0.69. On Saturday it read 0.62, and today it was 0.57 (those are all the numbers for last Friday remember). Suffice it to say that the PCR is 'pretty low' and, in combination with the VIX, is far too low to form the basis for any move upwards.

Market Breadth Statistics

NYSE Nasdaq
Advancers 1681 1474
Decliners 1609 1597
Advancing Volume (m) 747.1 746.83
Declining Volume (m) 1133.9 1000.93
New Highs 134 89
New Lows 23 43

Market Sentiment Statistics
Index Close Gain(Loss) %
CBOE Volatility Index 13.29 1.14 9.38%
CBOE Nasdaq Volatility Index 16.08 0.93 6.14%
Equity Put-Call Ratio 0.6 -0.09 -13.04%
10-day PCR 0.67 -0.02 -2.52%
SPX-VIX Ratio 89.7 -9.01 -9.13%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 8.3 bps to 4.347%.

The middle of the yield curve was broadly higher: five year yields fell to 3.753%, and ten-year yields fell to 4.006% (although my second data source tells me that 10-year yields closed under 4% at 3.98%).

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps tighter at 6.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 71.0 bps for 10-year AAA, and 101.5 bps for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were broadly wider with the AAA-A spread on 20-years 9.0 bps tighter at 41.0 basis points and the 10-year AAA-A spread 8.0 bps tighter at -19.0 bps. What the hell does it mean to have a credit spread inverted? (I think it means that there's either an AAA rated company who's about to be downgraded, or an A company that's about to be upgraded).

Treasury Yields
Index Close Gain(Loss) %
UST 13wk (yld) 2.882 0 0%
UST 2Y (yld) 3.56 -0.07 -1.93%
UST 5Y (yld) 3.753 -0.061 -1.6%
UST 10Y (yld) 4.006 -0.067 -1.64%
UST 30Y (yld) 4.347 -0.083 -1.87%

The Banks Index declined 0.56 points (0.57%), to 98.49; within the index,

  • Fifth Third Bancorp (FITB) -$0.56 (1.3%) to $42.67;
  • MBNA Corp (KRB) -$0.26 (1.22%) to $21.09;
  • Northern Trust (NTRS) -$0.48 (1.03%) to $46.03;
  • Washington Mutual (WM) -$0.40 (0.96%) to $41.30; and
  • Comerica (CMA) -$0.50 (0.89%) to $55.88.

The Broker-dealer Index added 1.13 points (0.78%), at 145.26; the ticket clippers lined up as follows -

  • Ameritrade (AMTD) +$0.47 (3.27%) to $14.86;
  • Goldman Sachs (GS) +$2.00 (2.09%) to $97.50;
  • E*Trade (ET) +$0.25 (2.07%) to $12.35;
  • Jeffries Group (JEF) +$0.59 (1.69%) to $35.41; and
  • Bear Stearns (BSC) +$0.87 (0.89%) to $99.04.

The Philadelphia SOX (Semiconductor) index lost 1.48 points (0.34%), ending the day at 428.95

  • Infineon Tech (IFX) -$0.25 (2.76%) to $8.82;
  • Intel (INTC) -$0.43 (1.57%) to $26.96;
  • Applied Materials (AMAT) -$0.23 (1.38%) to $16.42;
  • Xilinx (XLNX) -$0.36 (1.28%) to $27.77; and
  • Broadcom (BRCM) -$0.46 (1.28%) to $35.53.

Gold & Silver Markets

Gold fell by $3.50 (0.83%) to close at $416.30 per ounce. It's just not very exciting at the moment...

The Gold Bugs Index declined 0.93 points (0.5%), at 185.78

  • Eldorado Gold (EGO) -$0.10 (4.15%) to $2.31;
  • Glamis Gold (GLG) -$0.38 (2.59%) to $14.29;
  • Iamgold (IAG) -$0.15 (2.27%) to $6.45;
  • Randgold Resources (GOLD) -$0.14 (1.11%) to $12.49; and
  • Newmont Mining (NEM) -$0.35 (0.93%) to $37.24.

Silver rose a whopping $0.18 (2.5%) to close at $7.45 per ounce. Despite that rather impressive rise, the Gold and Silver Index (XAU) lost 0.19 points (0.22%), to end the session at 86.27 points - although the weakness was mostly in Gold stocks rather than Silver miners.

  • Placer Dome (PDG) -$0.14 (1.02%) to $13.52;
  • Newmont Mining (NEM) -$0.35 (0.93%) to $37.24;
  • Freeport McMoran (FCX) -$0.24 (0.68%) to $35.30; and
  • Harmony Gold (HMY) -$0.02 (0.26%) to $7.65.
Precious Metals and Indices
Index Close Gain(Loss) %
Gold 416.30 -3.50 -0.83%
Silver 7.45 0.18 2.5%
PHLX Gold and Silver Index 86.27 -0.19 -0.22%
AMEX Gold BUGS Index 185.78 -0.93 -0.5%

Oil Market

Oil was firmer, rising by $0.12 per barrel, closing at $51.97 per barrel. Early in the session, Crude dipped to below $51 a barrel, but posted steady gains during the session and eventually toped out just a few cents above $52 before settling just below $52 at the day session close. After hours, Crude has been up as high as $52.18.

The Oil and Gas Index (XOI) lost 9.66 points (1.16%), to end the session at 826.41

  • Repsol YPF (REP) -$1.03 (3.95%) to $25.06;
  • Amerada Hess (AHC) -$2.00 (2.11%) to $92.85; and
  • Royal Dutch Shell (RD) -$1.24 (2.07%) to $58.58.

The Oil service stocks (OSX) Index dipped 0.19 points (0.14%), closing at 134.49

  • Global Industries (GLBL) -$0.17 (1.95%) to $8.54;
  • Tidewater (TDW) -$0.45 (1.28%) to $34.60; and
  • BJ Services (BJS) -$0.47 (0.92%) to $50.35.
Energy Complex
Index Close Gain(Loss) %
Reuters CRB 300.89 0 0%
Crude Oil Light Sweet 51.97 0.12 0.23%
Heating Oil 1.4495 0 0.26%
Natural Gas 6.379 0.01 0.14%
Unleaded Gas 1.4665 -0.01 -0.6%
AMEX Oil Index 826.41 -9.66 -1.16%
Oil Service Index 134.49 -0.19 -0.14%

Currency Markets

USD Exchange Rates
Index Close Gain(Loss) %
US Dollar Index 86.42 0 0%
Euro 1.2302 -0.0266 -2.12%
Yen 108.55 0.66 0.61%
Sterling 1.8169 -0.0069 -0.38%
Australian Dollar 0.7556 -0.0072 -0.94%
Swiss Franc 1.2478 0.0178 1.45%
Canadian Dollar 0.7967 -0.0005 -0.06%